چکیده انگلیسی

On the basis of a unique database of policy makers’ verbal comments, we find that central bank “talk” in the Czech Republic, Hungary, and Poland influences behavior of financial markets. This effect, however, differs among the countries. The CEC3 central banks’ communication strategies are far from uniform. The CNB does a better job than the other central banks in matching words with deeds. Communication affects monetary policy predictability, but results depend on the committee structure and communication style. Finally, we provide evidence that pursuance of too many targets leads to inconsistencies in central bank communication.

مقدمه انگلیسی

Since the beginning of the 1990s central banking practice has shifted from secrecy towards more transparency about monetary policy strategy and objectives. Indeed, three out of four central banks consider transparency as a vital or very important component of their monetary policy framework (Fry et al., 2000). One underlying factor behind this trend is undoubtedly the link between transparency, credibility, and policy effectiveness.
On the one hand, central bank power seems to be limited, since the short-term interest rate, which constitutes the main instrument of monetary policy in most industrialized economies, matters very little for the future inflation outlook and for prospective economic activity (Svensson, 2005). On the other hand, efficiency of monetary policy may greatly be improved through its impact on private sector expectations. Expectations about the entire future path of interest rate shape the yield curve and thus determine long-term rates, which, in turn, largely affect private sector consumption and investment decisions. In this respect, monetary policy is increasingly becoming an art of managing private sector expectations.
Since central bank communication serves as a means to remove asymmetric information between markets and policy makers, it may influence market expectations regarding future inflation and future interest rate changes. Consequently, it is of paramount importance that in the decision-making process central banks account for the effects of their actions, including communication, on both short and long-term interest rates. 1
The central bank's power to manage private sector expectations depends on its ability to communicate intentions in an intelligible manner. Therefore, the effectiveness of monetary policy should benefit from transparency the most, when it is accompanied by good communication policy (Issing, 2005 and Winkler, 2000). In this sense, good communication is an indispensable element of transparency. Its importance has been emphasized by Woodford (2005) who argues that good communication, preferably a history dependent one, could replace policy action itself.
On the other hand, Amato et al. (2003) point to the double-edged nature of public information, which may suppress the private information of individual agents and thus crowd out an important source of information for a central bank.2 The question that then arises is whether more “talkative” policy makers help to dispel doubts or rather add to confusion as regards prospective interest rate decisions? The relevance of this issue seems to be supported by the recent efforts of central bankers around the world not only to achieve more, but rather better transparency.
Despite the recent proliferation of literature on transparency and communication, including the way these concepts are measured and their role in monetary policy effectiveness, the topic is far from being exhausted, not least in the field of empirical research.3 In particular, very few attempts have been made to assess central bank transparency in emerging economies; still less has been done to investigate the effects of central bank communication in this group of countries.4 This paper aims to fill this gap.
In our study we assess monetary policy communication in the CEC3 countries, i.e. the Czech Republic, Hungary, and Poland. All the CEC3 central banks have conducted monetary policy under an inflation targeting (IT) strategy. Nevertheless, their frameworks are not uniform. In particular, the National Bank of Hungary (MNB), in addition to the inflation goal, has an exchange rate target.
For the purpose of our study we have built a unique database of policy makers’ verbal comments. We analyze the CEC3 communication strategies and examine to what extent policy makers’ words correspond with their deeds. We also investigate whether central bank “talk” provides relevant information for economic agents, and–consequently–whether it influences their behavior. Benefiting from the contribution of Bernanke et al. (2004) we have not confined ourselves to a general conclusion whether statements of the policy makers do influence the market-based indicators. We also examine whether central bank “talk” affects expectations of future decisions in the desired direction and whether and when this impact varies with the horizon of the potential interest rate movements. Finally, we investigate to what extent the predictability of monetary policy decisions has been influenced by central bank communication. To this end, we apply the method that allows examining whether more intense and/or unanimous communication on the part of a central bank helps to reduce the unexpected component of a monetary policy decision.
Our results are as follows. First, we find that communication strategies largely differ among the CEC3 countries and that policy makers’ words often do not correspond with their deeds.
Second, we provide evidence that central bank “talk” does influence market expectations of future policy decisions. The strength and significance of this effect vary with the horizon of potential interest rate movements and largely depend on the adopted form of communication. Not all central banks have been equally successful in affecting market-based indicators, however. The results differ among countries, with some puzzling findings for Hungary, which might be related to the duality of its monetary policy framework. Indeed, this study shows that inclusion of additional targets under an IT regime leads to inevitable inconsistencies also in the field of central bank communication.
Third, the analysis provides mixed results as to the impact of central bank communication on the predictability of monetary policy decisions in the CEC3 countries. The extent to which the amount of statements and the degree of disagreement among policy makers affect predictability of central bank decisions may depend on the communication strategy in general, and the committee structure in particular. The effectiveness of the individualistic committee's communication (see Blinder, 2006-this issue) may in turn hinge on the availability of other communication instruments, such as minutes or release of voting records. Another factor that seems to influence the impact of central bank “talk” on the predictability of monetary policy decisions is the consistency of policy maker statements, i.e. the extent to which their words correspond with their prospective deeds.
The outline of the paper is as follows. In Section 2 our data and methodology are presented. Section 3 contains the evaluation of the communication strategies of the Czech National Bank (CNB), the MNB, and the National Bank of Poland (NBP). It also includes an analysis of the consistency and effectiveness of central bank communication in Poland, Hungary, and the Czech Republic, as well as an assessment of the extent to which policy makers’ words influence the predictability of central bank decisions. The final section concludes.

نتیجه گیری انگلیسی

The paper pioneers an in-depth analysis of the central bank communication in Poland, Hungary, and the Czech Republic. We examine not only the communication strategies, but also the impact of the central bank “talk” on the behavior of the markets, as well as its influence on the predictability of interest rate decisions in the CEC3 countries.
We find that, despite pursuing monetary policy based on inflation targeting strategy, central banks in the Czech Republic, Hungary, and Poland have adopted very different communication styles. A simple frequency analysis suggests that there is a high inflation and a positive outlook bias in the NBP and–to some extent–in the MNB communication. On the contrary, the CNB statements are more balanced. We extend this analysis by constructing the consistency indicator, which aims to measure whether policy makers’ words match their deeds. The results confirm that the CNB is the CEC3 communication leader, for its statements seem to be the most consistent with its subsequent actions.
Further, we show that the central bank “talk” does influence the behavior of financial markets. The strength and significance of this effect differ among countries, vary with the horizon of the potential interest rate movements and largely depend on the adopted form of communication. For the MNB, however, the analysis brings some puzzling results that may be related to the dual nature of the Hungarian monetary policy framework. The pursuance of the additional target within the inflation targeting framework leads to inconsistencies in the field of central bank communication.
Finally, we provide empirical evidence that monetary policy communication in the analyzed countries influences the predictability of central bank decisions. However, this impact varies largely among the CEC3 countries. The extent to which the amount of statements and the degree of disagreement among policy makers affect predictability of central bank decisions should depend, we argue, on the communication strategy in general, and the committee structure in particular. The example of the CNB shows that in the case of the individualistic committee it pays off to provide the public with additional information, even when it comes at the cost of the communication consensus. However, the markets’ ability to learn about the group dynamics may hinge on the availability of other communication instruments, such as minutes or release of voting records. The lack thereof might have influenced the effectiveness of the Hungarian bank communication. Another factor that seems to affect the impact of the central bank “talk” on the predictability of monetary policy decisions is the consistency of policy maker statements, i.e. the extent to which their words correspond with their deeds. Indeed, the poor interest rate guidance of the Polish MPC, as evidenced by the consistency indicator, seems to explain the weak impact of central bank communication on its decisions predictability.